The Crisis of Financialisation in Ireland

Seán Ó Riain

Abstract

This paper explores the intersection of national and transnational processes in shaping Ireland’s financial crisis. It uses insights from economic sociology to reconcile the analytical tension between an understanding of Ireland’s crisis in terms of the unfolding of an international process and explanations that focus on specific national features. A series of significant policy decisions in the late 1990s favoured financial markets in allocating capital and opened up significant institutional space for speculative lending. Underneath the apparently consistent expansion of the property lending bubble since the mid-1990s, there was a significant shift in investment logics from the early 2000s as both residential and commercial real estate spending became detached from underlying demand. This shift in logic was based on two significant “translations” of investment rationalities into justifications of lending and investment that underpinned the bubble. Irish banks’ own conceptions of risk and rational investments shifted subtly over time so that property lending was translated into a rational investment, encouraged by market dynamics such as increased bank profits, rising share prices and concentration of decision making power in the banking system. At the same time, and in the context of the establishment of the euro, investing in the assets of Irish banks was translated into a rational investment for international banks, in large part through the metrics of the credit ratings agencies. The paper concludes by revisiting the question of how we should understand the specifics of particular financial crises in conjunction with the general dynamics of financialisation – pointing to the importance of “translation” processes in creating social rationalities and the significance of “market liberalism” as a social formation in enabling these translations and promoting financialisation.